Valuation Errors Caused by Conservative Accounting in Residual Income and Abnormal Earnings Growth Valuation Models

The impact of conservative accounting in residual income valuation (RIV) and abnormal earnings growth (AEG) valuation modeling is investigated in this paper. Unconstrained and two types of constrained model specifications are evaluated regarding their ability to withstand biases in book values and earnings due to accounting conservatism. Given that the “clean surplus relation” holds and that the precision of forecasted accounting numbers is unaffected by the type of accounting principles, the unconstrained valuation models are – not surprisingly – found to be immune to conservatism. This does not hold for the constrained models, even though conservatism can be accommodated in these if the time-series specification of the conservative bias fulfils certain conditions. In a comparison between terminal value constrained models, the AEG model is found to be superior to the RIV model if the growth of the conservative bias in the terminal period is not too extreme. Comparing the information dynamics constrained models being proposed in Ohlson (1995) and Ohlson & Juettner-Nauroth (2005), the AEG model is potentially more accurate than the RIV model. However, in a company steady state setting with constant growth, there is no comparative advantage for the AEG model. Also, using the same set of forecasted accounting numbers in the information dynamics constrained RIV model as in the corresponding AEG model, the two models cannot be ranked.Abnormal earnings growth model; Accounting-based valuation; Conservative accounting; Financial analysis; Residual income model

Neocortical dendritic complexity is controlled during development by NOMA-GAP-dependent inhibition of Cdc42 and activation of cofilin

Neocortical neurons have highly branched dendritic trees that are essential for their function. Indeed, defects in dendritic arborization are associated with human neurodevelopmental disorders. The molecular mechanisms regulating dendritic arbor complexity, however, are still poorly understood. Here, we uncover the molecular basis for the regulation of dendritic branching during cortical development. We show that during development, dendritic branching requires post-mitotic suppression of the RhoGTPase Cdc42. By generating genetically modified mice, we demonstrate that this is catalyzed in vivo by the novel Cdc42-GAP NOMA-GAP. Loss of NOMA-GAP leads to decreased neocortical volume, associated specifically with profound oversimplification of cortical dendritic arborization and hyperactivation of Cdc42. Remarkably, dendritic complexity and cortical thickness can be partially restored by genetic reduction of post-mitotic Cdc42 levels. Furthermore, we identify the actin regulator cofilin as a key regulator of dendritic complexity in vivo. Cofilin activation during late cortical development depends on NOMA-GAP expression and subsequent inhibition of Cdc42. Strikingly, in utero expression of active cofilin is sufficient to restore postnatal dendritic complexity in NOMA-GAP-deficient animals. Our findings define a novel cell-intrinsic mechanism to regulate dendritic branching and thus neuronal complexity in the cerebral cortex

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